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07/02/2006 | China's Motive in Oil Deals with India

Stratfor Staff

Indian Oil Minister Mani Shankar Aiyar traveled to Beijing on Jan. 11 for a three-day round of energy talks with Chinese officials and energy firms that will culminate in a series of agreements for Sino-Indian exploration, production and bidding on oil projects.

 

Summary

Indian Oil Minister Mani Shankar Aiyar traveled to Beijing on Jan. 11 for a three-day round of energy talks with Chinese officials and energy firms that will culminate in a series of agreements for Sino-Indian exploration, production and bidding on oil projects. In the past six months, China has engaged several countries -- including Vietnam, Turkmenistan and Iran -- in cooperative energy projects that have yielded Beijing both natural resources and political gains. The India-China energy partnership, however, offers substantially less money, indicating China primarily seeks political gain from the arrangement amid growing Russian and American interest in India.

Analysis

Indian Oil Minister Mani Shankar Aiyar visited Beijing on Jan. 11 to engage in a round of energy talks with Chinese government officials and energy companies from Jan. 12 to 14. These talks will ultimately produce as many as 12 agreements covering all aspects of cooperation between the two countries in oil and natural gas ventures. The deals under negotiation provide for cooperation in petroleum exploration, production, storage and stockpiling, research and development, and conservation.

Previous Chinese energy partnerships with countries such as Iran, Turkmenistan and Vietnam granted China proprietary access to petroleum and natural gas resources. For example, in December, the Iran-China Committee was established to oversee three working oil projects on the Yadavaran oil field. Similarly, a recent joint venture with Turkmenistan -- which boasts natural gas supplies second in the region only to Russia -- calls for Chinese firms to develop hydrocarbons in the Caspian Sea and Amudar River.

Other oil and natural gas partnerships provide China with access to locales inaccessible to competitors because of political considerations or conflicting territorial claims. Thus, an agreement with pariah-state North Korea in December enables Chinese involvement in the development of offshore oil reserves in North Korea's territorial waters. And a joint exploration agreement with both the Philippines and Vietnam provides for exploration in the hotly disputed South China Sea.

India, in contrast, has neither the politically off-limits resources of Iran, nor the until-now-untouchable resources of the South China Sea. Instead, China's primary goal in the current round of deal-making with India is the maintenance of a "friendly" Chinese presence in the region and of a counterbalance to recent impressions that Chinese companies could become a formidable economic competitor to India. This political, rather than profit-oriented, motive sets the Sino-Indian partnership apart from prior energy arrangements between China and other nations.

India stands to gain from an energy partnership with Chinese companies, which boast both superior technology and loads more cash. It also can avoid the ever-embarrassing -- and recently extremely common -- development of being outbid by Chinese companies.

When the two nations go head-to-head in oil deals, Chinese energy companies systematically beat out Indian energy bids. For example, China National Petroleum Corp. (CNPC), a unit of PetroChina Co. Ltd., channeled $4.2 billion in a takeover of Kazakh producer PetroKazakhstan Inc. over bids by India's Oil and Natural Gas Corp. (ONGC). And on Jan. 10, state-owned China National Offshore Oil Corp. announced that it had brokered a 45 percent stake in a Nigerian oil field, a deal in which the ONGC backed out despite outbidding China's $2.3 billion offer.

Both CNPC and ONGC also are reportedly looking to bid on private Kazakh oil producer Nations Energy Co. Ltd. Barring a massive change in company strengths, CNPC almost certainly will win. Most recently, Hong Kong-listed PetroChina Co. Ltd. inked a deal with Myanmar for the sale of 6.5 trillion cubic feet of gas from Myanmar's Block A-1 reserve over 30 years, outbidding New Delhi.

India is seizing upon the Chinese willingness to sacrifice economics for politics with the desperation of a player that knows it has no options. As such, Beijing's energy bid represents only part of a recent Chinese trend of pursuing more politically beneficial energy ventures with India. In a December joint bid, the CNPC and ONGC -- the two leading oil companies within each country -- both acquired 38 percent of Petro-Canada's stake in Syria's Al Furat oil and gas fields, worth $573 million.

By working with India on energy issues globally, China can reduce the impression in New Delhi that Beijing represents a clear and present danger, and leave enough ambiguity to encourage India to remain at least relatively neutral in the three-way competition for India's affections between China, Russia and the United States. In addition, the partnership allows China to bolster its regional image as a cooperative and caring neighbor. And given the disparity between Indian and Chinese energy consumption and needs, the deal does little to weaken China's access to resources, while offering Beijing political benefits, even if only for a time.

Stratfor (Estados Unidos)

 


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